GY 302: Crystallography and Mineralogy (2015)
Assignment 7: Assessing the Economic Potential of Ore Deposits
Your Task: One of the important jobs that economic geologists do when employed with mining
companies or government geological surveys like the USGS is to assess the economic potential of
new ore deposits. Once the limits of the ore body have been delineated, it is up to the project
geologists to determine if a profit can be made in establishing a mine at the site. Numerous
factors need to be considered. How much ore is there? What is its grade? What rate of
extraction/processing can be done? How long can the mine operate? What is the cost of
processing? There are also startup costs. Last year, you could have easily borrowed money from a
bank to get started. In today’s economy, even profitable mine sites are difficult to develop
because of lack of funds (i.e., banks will not loan money).
This exercise will introduce you the economic realities of mineralogy. Consider the diagram on
the next page. It shows the extent of a copper ore deposit located in an isolated area of Papua
New Guinea. You have been contacted by a local investment firm that is considering helping to
fund the development of a small pit mine at the deposit. The junior mining company that found
the deposit is a small Australian exploration firm (AusCo). They don’t normally produce the
deposits they find (i.e., they are not a mining firm), but would like to work this one if it is
profitable. If the deposit is not worth them mining it, they would be willing to sell their interests
in the property to mining giants Rio Tinto or BHP. AusCo is looking to cut a deal with an
investment bank
Assaying data has shown that the deposit consists of 2 zones. Both zones are essentially
rectangular in extent. Zone 1, the rich interval, contains on average, 3 wt% digenite, 2 wt%
chalcocite and 5 wt% chalcopyrite. Zone 2 contains 1.5 wt% chalcocite and 2 wt% chalcopyrite.
The average specific gravity of the ore in zone 1 is 3.45 g/cm3 (3450 kg/m3). The average specific
gravity of the ore in zone 2 is 3.12 g/cm3 (3120 kg/m3). The plan is to extract the rich ore zone
first and then, if economically feasible, expand the open pit into zone 2.
In Papua New Guinea, average extraction/smelting costs are relatively low ($US 45.00/tonne),
but the infrastructure is poor. Consequently, start up costs for even a relatively small extraction
operation (4,000 tonnes/month) will be in the order of $US 10 million dollars. There are also no
final processing facilities available. That will have to be done in Australia, so budget
$30.00/tonne for shipping/offsite processing. The deal that AusCo would like to make with
investment bank is to get an interest free loan payable in full within 3 years. In return for the
loan, the investment firm gets 25% of the profits from year 3 onwards until the mine is closed.
At current copper prices 1, and considering the processing/extraction and shipping costs as well as
reasonable operational expenses 2, how much money can AusCo expect to make from the high
grade deposit per year? How long will they be able to mine it before the high grade deposit runs
out? Can they pay off the loan within 3 years?
Is zone 2 currently economical? If so, how much money will AusCo make per year and how long
will this deposit last? If it isn’t currently economical, what price of copper will be needed to make
1
That means today: check a commodities site on the internet for the most recent copper prices.
AusCo is a 3 person operation; 2 geologists and a secretary. Salary expenses are estimated to be $125K
per year. Also budget an additional $10K per year for assaying and personal travel expenses.
2
it so? Assume extraction/processing costs remain the same for the foreseeable future. Ultimately,
would you recommend that the investment firm write AusCo a check for $US 10,000,000.00?
Please submit your assessment in the form of a professional letter written to the following
investment firm:
Ponzi Investing Pty.
1313 Slim Road
Hobart, 7000 Tasmania
Australia
Be sure to answer all of the questions posed in this week’s assignment.
Due Date: See calendar or website for due dates.
<150 m>
<65 m>
<80 m>
<100 m>
<240 m>
<50 m>
1
1
<50 m>
<150 m>
Table 1: Worksheet for estimating copper production/gross revenue for the Zone 1 mine site.
$US ____________ current price per pound of Copper
Zone 1 (3450 kg/m3)
Mineral
Mol. Wt.
732.24
Digenite
Cu9S5
Chalcocite 159.16
Cu2S
Chalcopyrite 183.53
CuFeS2
Wt% Cu
in
mineral
Wt%
mineral
in ore
Wt% Cu
in ore
Total wt
Cu per
m3 ore
$US gross
per m3 ore
$US gross per
tonne ore
3
2
5
Total Gross per tonne of Ore
Less processing/smelting costs in PNG of $ ________/month
Less transport/processing costs in Australia of $ _____/month
Total Net per tonne of Ore
Total Gross per month based upon _______ tonnes mined
Less salary costs of $ __________/month
Net profit/(loss) per month ($US)
Net profit/(loss) per year ($US)
Zone 1 Longevity Calculation Space
-
-
Table 2: Worksheet for estimating copper production/gross revenue for the Zone 2 mine site.
$US ____________ current price per pound of Copper
Zone 2 (3120 kg/m3)
Mineral
Mol. Wt.
732.24
Digenite
Cu9S5
Chalcocite 159.16
Cu2S
Chalcopyrite 183.53
CuFeS2
Wt% Cu
in
mineral
Wt%
mineral
in ore
Wt% Cu
in ore
Total wt
Cu per
m3 ore
$US gross
per m3 ore
$US gross per
tonne ore
0
1.5
2.0
Total Gross per tonne of Ore
Less processing/smelting costs in PNG of $ ________/month
Less transport/processing costs in Australia of $ _____/month
Total Net per tonne of Ore
Total Gross per month based upon _______ tonnes mined
Less salary costs of $ __________/month
Net profit/(loss) per month ($US)
Net profit/(loss) per year ($US)
Zone 2 Longevity Calculation Space
-
-